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Morgan Stanley to exit India banking on stricter rules

At a time business houses are lobbying hard to own banks, US financial services group Morgan Stanley has chosen to surrender its banking licence in India.

| ET Bureau | Updated: Jan 26, 2013, 09:00 IST

(This story originally appeared in on Jan 26 , 2013)

MUMBAI: At a time business houses are lobbying hard to own banks, US financial services group Morgan Stanley has chosen to surrender its banking licence in India. The decision is driven by a reassessment of business strategy in the face of new regulations and stringent capital rules.
Morgan Stanley, the sixth-largest US bank by assets, will, however, continue to run its investment bank in India and stay registered as a non-banking finance company with the Reserve Bank of India (RBI).

Morgan Stanley declined comment for the report. PJ Nayak, the former Axis Bank CEO who had transformed the bank into the country's third-largest private lender, is the chairman of Morgan Stanley India.

In March 2012, the Wall Street biggie received the licence to set up a bank. "It is now planning to let the licence lapse as it does not want to tie up capital and other resources on account of a review of its strategy," said a senior banker in the know of the development.

A banking licence, issued by RBI, lapses if not used for a year. In the past, a few foreign banks had requested the regulator for an extension to keep licences valid. But Morgan has decided not to apply for an extension.

A week ago, Morgan Stanley India laid off 13 employees from its securities business, which includes debt capital markets and investment banking. More than 400 people are employed in Morgan Stanley India across businesses such as capital markets, equity and fixed-income sales and trading, research, asset management and private-wealth management.

A banking licence would have given the US group access to cheaper finance and a foothold in the Indian money and foreign exchange markets. Also, it would have enabled it to lend to corporates it currently advises on fund-raising and acquisitions. "But operating a branch in the country also means additional capital commitment and adhering to the minimum mandated lending to agricultural activities, which has played a drag," said another person familiar with the development.

Barring Citigroup, most Wall Street banks such as JPMorgan and Bank of America Merrill Lynch are not into consumer banking in India given the tough competition from domestic players as well as restrictions on setting up new branches.

Morgan Stanley has been realigning its business focus globally and had announced that it aims to exit more complex realms of bond trading that require more capital under new regulations. It is also in the process of selling its five-year-old wealth management business in India.

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